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Want to make a lot of money during the recent crypto currency rise trend? Thinking of taking a piece of your student loan to invest long term in Bitcoin, Ethereum, or some other type of crypto currency and block chain technology? Reflecting on quitting your day job to become a full time cryptocurrency trader?

Would it still be worth it if I risked it? Good question, Continue reading to find out.

Cryptocurrency trading for beginners

An Introduction

Whether you’re new to this dangerous looking trading game, or if you have had some experience trading traditional market but feel like crypto “is a totally different course”, this beginner’s guide is for you!

If you’re like majority of new traders, you might not understand what a “PIP” is, or have no clue how or where to get started in reading and interpreting charts and candle sticks, and everything may look very strange, confusing and mind blowing at first sight, but fear not! We’ve got you covered in this post.

Cryptocurrency trading is not so different from traditional markets, and in fact provides a more level playing field with relatively less “SMART MONEY” in the game today, and if I may say, “VERY EASY” to learn too. It doesn’t matter if you have any previous trading experience, this blogs article aims to provide you with a guide to cryptocurrency’s firsthand knowledge and needed resources to help learn crypto trading, and to present a framework with which you can approach trading cryptocurrencies and the global market at large.

Trading the world of Bitcoins, Ethereum and Altcoins may seem like trying to walk over a swampy river at first, but once you learn how to read your map, have the right lenses on with which you view the nearest markets through, combined with the right attitude and a strong natural tendency to keep trying and improving, you will quickly be able to develop an eye for the market and chart patterns, and begin to make sense of all the ins and outs of trading.

It is a known fact that almost every professional trader started their career by losing for the first 3, 5 or even 7 years. On the brighter side, I assure you that trading is no rocket science but knowing the right strategy, proper risk management combined with discipline, anyone can make trading profitable, even you! So let’s get down to it…

What Is A Market

Truth is, you become a trader the very moment you buy your first Bitcoin, Altcoin, or Ethereum from an individual or company. Whether you’re trading as an hobby, want to make more than a full-time job, or simply just dipping your toes into the world of blockchains and cryptographic currencies, it is essential for you to at least arm yourself with the elementary trading technique and price analysis frameworks, since trading is an inherent bit of owning cryptocurrencies that you cannot evade whether you like it or not.

Before we begin the tutorial, let’s first examine the markets and trading from a more theoretical perspective.

Ask yourself this: What’s the one thing all traded markets have, be it commodities, stocks, cryptocurrencies or even bonds? You may have guessed it correctly; it’s none other than the human beings trading it, and it is the emotional decisions of human’s traders that drive prices in the market. On this fact, we can agree that price is the collective representation of human emotions, and hence emotions and psychology are a critical puzzle piece and a great first step to understanding the rules of the game as beginners.

We all have personal styles, from the clothes and accessories we wear, to the type of diets (vegan, or non-vegan etc.) we have. Likewise in trading too, we all have different risk appetite (some like to go in small and others love to go in big) and propensity, portfolio size, schedules, preferences and it’s of first priority for someone getting into trading to first figure out what type of trader you are, to create your own personal understanding of the market, your own perception of how to analyze the market, and your own framework or scope on how to approach the market.

With that out of the way, there are many diverse parameters you can tweak to create and grow your own style, there are many influencing factors that you need to take care of whether or not you take a bad or good strategy , or style, and path.

The remaining body on this post cover these important concepts, to give you a beginning for creating your own approach to cryptocurrencies( Zcash, Bitcoin, Ethereum) trading so that you can bring in your style of trade along with you everywhere and on the market too.

Understanding Yourself- What Type Of Trader Are You?

To start with, let’s begin with the simple yet effective 5W1H (except the “WHEN”, which isn’t all that related to the topic here) questioning technique, and dig in to understand ourselves better.

Do you want to trade to achieve financial freedom? Make some extra income from a side hustle? Have an interest in trading technology and wish to invest in it for the long term? or do you just wish to make travel the world while earning passive income?

Whatever the reason, make it crystal clear to yourself and seek good advice and support of your family and friends.

WHO are you? WHEN can you trade?

Do you want a full-time job or are you a freelancer? Do you wake up at the wee hours of the morning and go to bed at nightfall, or are you a nightwalker? What is your schedule like? Are you a single or you having a family and kids? Are you studying, working or both?

I’m pretty sure you already know all this about yourself, but have you also stopped to think on how these factors can affect the development of your trading style?

You can only tailor your strategy to suit your circumstances after figuring the WHAT, WHO, WHY and WHERE of your trading.

Are you a position trader, day trader or swing trader? If you’re currently working a full time job and can’t tend to your positions throughout the day, don’t attempt to be a day trader trading 15m candles, instead, put your focus on higher timeframes such as 6h, 12h or 1d candle charts instead.

Time to pop the million dollar question, HOW can you devise a lucrative trading strategy, suited to your personality, to achieve your goals and live your dreams? Sadly, there’s no simple answer here, and anyone who tells you otherwise is either trying to scam you or is lying to you. However as the answer lies in you, to really understand yourself, your desires and goals, in order to create your very own unique strategy. But that’s not all, in fact it’s just the beginning…

To master the art of trading is simple yet seemingly complicated process of putting together all the available pieces of information to form a complete image, in a world of incomplete picture. Additionally, it involves hundreds if not thousands of hours of testing strategies and setups, finding your own way of making sense of the bigger picture, probabilities of the game, and actively following it, and most Importantly, keep your emotions under control while learning to apply proper risk management.

Nobody said it will be easy, but if you are ready to make sacrifices while playing the hardest game in the world, I’ll try my best to get whet you in the basics on cryptocurrency trading for beginners, a foundation to get you started on the life-changing adventure.

How Do You Trade?

Analyzing trade markets can involve the use of a single or a combination multiple methods such as quantitative analysis, fundamental analysis, technical analysis, based on news, based on retail order flow or following insider information or “other people’s tips”.

I’d like to warn you never to enter a trade based on a strong feeling, or on a coin toss, or even worse based on a “HOT TIP” from your colleague, friend, uncle or something you heard on the Television.

Every player has their own personal style, and the cold truth is that while some of them work, others don’t.

Moving forward, we’ll separate trading into modular components and examine what determines a good trade, how you can begin your winning streak and be a moneymaking trader, look at some of the ways to avoid traps on trading based on hot tips, and provide you with the needed skills and wisdom to approach trading and keep your cool even in the worst situation in the market.

What Determines A Good Trade?

Follow the trend

In most cases, you should make trades in the direction of the trend i.e only buy in a bull market and never try to short it until the trend has shown to reverse.

Price

Price can be taken relative to something else. You are probably familiar with the BTC/USD pair, which represents the value of BTC in terms of USD, as well as the pairs with other official currencies. However, do not confine your perception, since price is relative, we can value BTC in terms of other commodities such as bigmacs and gold.

Lastly, “cheap” and “expensive” although mean different things are related terms. A coin should not be seen as cheap just because it contains 1 satoshi, compared to Bitcoin. For example, that costs over $2000. Price should be analyzed in relation to supply to price, as well as the perceived value of the cryptocurrency, company or commodity.

Timing

Market timing of coins is an often overlooked yet extremely important part of a good trade. As a trader friend would say, “When it comes to trading, timing is everything”.

There’s no “good” price without a “good” timing. Anyone can buy at a “high” price but at a “perfect” timing and it’ll be a good trade, but if your timing is ‘wad”, your “good” price. Price could quickly go against you and end up being a losing or a bad trade.

If you made some cool profits during the recent Bull Run, now is the time to learn to keep it, and fast because it does not matter how much you keep.

What many beginner traders might find sophisticated at first is that you don’t have to win >50% of your trades to be profitable. There is one important factor known as “risk-reward ratio” in market trading, that can make you a profit making trader even if only 25% of your trading are winners, by taking only trades with rewards that outweigh the risks by >3x i.e you can make 3 loss of $1 each, and only make 1 winning trade with a profit of $3, and still end up breaking even.

So back to the question, how can I win? Perhaps to give an answer to this question, we might get some hint by researching how people lose. Generally, people lose in two ways, by getting into the trade at the wrong time and by being impatient, or by being patient at the wrong time and holding on to a losing trade longer than you should. Don’t do this!

Element of Good Trading

Cutting losses

Cutting losses

No 1 and 2

You heard me “Cut loses”

Keep on cutting losses

Follow step 1-5

Cut Your Losses Short and Let Out Your Winning Streak

One of the most experienced and an old saying on Wall Street is “cut your losses short and let your winners run”. Sagacious advice, but many investors still appear to do the reverse, selling stocks after a small gain only to watch them head higher with regret, or holding a stock with a small loss believing it will rise high again only to see it worse. Don’t be that guy.

It may not agree with what seems right or natural at first, but the secret to winning lies basically in managing your losses. Remember an old saying, it goes thus “take care of your losses and your profits will take care of itself – it’s simply easy don’t you think?

Using Stop Losses

Many professional traders know that stop-losses are an integral part of any trading system, especially as they start to automate strategies. Be it a position trader getting in at the accumulation phase, or a scalper looking to buy a high momentum breakout, professional traders plan their exits( both take-profit and stop-loss, levels) before even entering a position.

The benefits of using stop losses include

-Limits your losses

-Preventing you from blowing up your trading accounts

-Presents you an opportunity to “Live to fight” another day.

Nevertheless, in crypto, and especially in the lower mature markets, you may find it almost impossible in low liquidity markets to use stop-losses without running the risk of losing your entire accumulated position due to a careless decision. It is always advisable to use stop-losses especially when day trading more liquid markets ( e.g. 2600 BTC daily volume or more), or at least devise a plan and perhaps alerts or email newsletters to tell you when you should get out of your trade if you don’t physically have a stop-loss order in place. Figuring out the exact place to put your stop loss takes time and patience to master, and there’s no better way to learn than to actually get trading and that is why we have compiled this helpful guide on Cryptocurrency trading for beginners.

Bottom Line?

The idea of booking profits by moving up stop-losses, like a footpath stop-loss, should always be carried out with the sole aim of protecting your profits during big trends while still keeping your draw-downs.

A Guide for Cryptocurrency Trading: Analysis Methods

Trading can be scary when new to you; even the basics like reading the flow chart. You must endeavor to learn everything you can about reading a chart, meaning of many different trading terms, and other analysis tools and patterns that are technical. All of these will help in your analysis and trade.

Fundamental Analysis is described as the study of the merits of the company behind a stock, typically by looking at a company’s earnings, earnings per share, revenue, profit, growth, return on equity etc. In the case of crypto, FA would include factors such as the projects product and tech, the strength of the development team, support from the community, and etc.

Technical Analysis (TA), on the other hand, usually involves the study of price action, looking for structure cycles, patterns and setups based on price probabilities and data. Technical analysis is more of an art and less of science. I refer to it as a science that has quantitative data to analyze, probabilities and people involved. As explained before, markets are traded by people, and people can act irrational. Events chart patterns have probabilities of success and failure; the ultimate result is determined and governed by its participant emotions.

The result of this render TA unable to predict the precise price or timing of a move owing to the numerous number of factors that affect each other in a website, and where the action of one man can make or mar everything.

A huge number of traders use a combination of both; For example, many use FA to sort out the stocks that are worth putting money into, while using TA for the most part to locate an entry point, to screen the stocks selected by FA, figures out what one is right and best to enter, right now. You may have a mountain size of great stocks, but knowing when to buy them, is the key if you’re a trader.

Despite the fact, that FA gives you an idea of which stock is a good buy, it gives zero clues on the timing of entry for the trade. It is sage to know that not only does FA not consider stop losses, it appears to go completely against stop loss strategies by encouraging one to add to a losing position, when price decrease while the fundamentals (e.g. P/E ratio) company remains the same. Unlike FA, TA that imbibes and supports the concept of stop-losses and cutting loss short in most of its strategies. Indeed, TA is a key to preventing you from blowing your accounts.

Trading Strategies, Plan and Rules

According to Wikipedia, a trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets.

Would you drive a train on a roll without first understanding the rail rules? No you wouldn’t, unless you want to experience a quick and painful death. It pains me when I see, many new traders rushing into the markets with no trading rules in place- They forget that without any knowledge on trading strategies the end result will be DISASTER.

I know it may be difficult to even know where to begin at first, and it would probably take more time than planned to understand charts, trying out series of indicators, before you can get some idea of what may or may not work. From there, find setups with potential profit and add parameters to your rule set for entering and exiting a position.

By fixing your trading before taking any position and strictly following your set plan and rules. You should be able to better handle your emotions, as you begin to trade based on quantity and targets instead of relying on guess work and being lost without any predetermined targets or exit plan.

*Grabs a coffee* and *sips*

Enjoying “Cryptocurrency trading for beginners?”

There is no such thing as “PERFECT ENTRY”

Instead, focus YOUR ENERGY on:

-Emotional control

-Trade management

-Risk management

-Position Sizing

-Exit

Risk and Trade Management

Risk management is undoubtedly the #1, most undervalued trading rule, and also the most under estimated by most new traders, who on a frequent basis continue to blow up their accounts until they learn to follow rules.

You might possess the best strategy with unbelievably increased gain, but if you are risking 20% or 50% on every trade, or if you fail to keep your draw-down low, it is a risk management disaster and is not a good trading strategy. As a guide, in traditional markets, profitable ETFs and hedge funds look for draw-downs of no more than 7-10% per month, averaging about 10-20% profits per year.

The number one rule of trading is letting your winners run, and cut your losses short. And back to our earlier point that if you manage your losses well, your profits will take care of themselves of course, cryptocurrency is a different game altogether, and your profits could be in the 100s or 1000s of %, but if you don’t start cutting your drawdowns aggressively, it’ll only be a manner of a few more trades before you blow your account.

In terms of trade size management-never put all resources in one of trade. Instead set rules so that you risk only 2% (or 6%, or 10%, or more depending on your risk appetite) of your portfolio in a single trade. And most important of all, NEVER OVERTRADE!

Your Attitude

Attitude is Life and life includes everything. Here are my thoughts on some attitudes of a good trade:

-Never think, even for a second that you’re better than anyone else or that you are a supreme master. Learn and be humble.

-Learn to accommodate new ideas that may not immediately agree with yours. You should be objective with all kinds of information, filter bias and improve yourself.

-Develop and nurture passion to learn and improve yourself

-Keep trading and never give up

I sincerely hope that post “Cryptocurrency trading for beginner” has provided you the essentials you need to find your way around in this cryptocurrency trading swamp, and has shown you some practical revelation into starting your own trading journey even as a beginner and how to approach and analyze markets.

16 Comments

Crypto MitchDecember 23, 2017

I have left this comment on YouTube as well, and am simply transferring it here for those who only visit this blog.

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Martins,

I have the utmost respect for your work and I am grateful you are tackling the topic of cryptocurrencies. I will certainly yield that it is a trader’s market, not investor. Yet, I am interested in your thoughts (not immediate, just long-term food for thought) on the idea that Bitcoin fits a whole new type of asset class. It is, as you mention, much like a currency in that it does “moderately” fit the 3 characteristics traditionally listed:

1) Store of Value
2) Unit of Account
3) Medium of Exchange

Yet, it struggles to adequately fit all of these roles primarily as the result of its volatility, which hinders its use as a store of value and medium of exchange. If we think about it as a commodity, it is certainly driven by supply and demand. Yet it is not really an “input” for any particular industrial use as you note and there is no “required” floor value like you would see with something like cobalt (you can argue the costs required to mine a single Bitcoin are its floor value, yet those costs are artificially inflated and could correct if it becomes too prohibitive as miners drop off from network and difficulty adjusts downward).

Here’s the part where we fork in our opinion of Bitcoin. While it is NOT a cash producing asset like a company is, it does provide a service in a similar vein. It targets three major markets outside of its use case as a store of value or “digital gold:”

If one were to think of Bitcoin as a fintech company with characteristics of a currency, it becomes kind of an odd entity to classify. Theoretically, we could argue there is value based on a certain market penetration of one of those above markets. We could also argue that the Bitcoin network must have a certain market value to match a required level of utility value in its network.

A lot of this work is in its infancy, but I strongly encourage you to read the book “Cryptoassets” by Chris Burniske & Jack Tatar. There is a section in there dedicated to valuing Bitcoin and cryptocurrencies. Here is a free article by Burniske that gives you a glimpse into the idea of identifying the utility value of a network based off adoption curves (which essentially act as the DCF models of cryptocurrencies at this point in time)

It also opens the door of relative valuation metrics such as market cap to transaction volume (usually on a rolling basis). The issue with ratios like these, naturally, is that it is tough to say what is and what isn’t a fair multiple while this is a much easier task in equities because we can take any multiple with stocks and flip it to find a more intuitive metric (e.g: earnings yield). We have plenty of data to support what is and what isn’t fair in equities, but none in cryptocurrencies.

All of this is to say, this is just the beginning of a long road for identifying what exactly cryptocurrencies are. I hope your views aren’t solidified yet – mine certainly aren’t, because there is plenty still left up for interpretation.

Ethereum is currently leading in many every aspect of crypto and now has enough liquidity to attract larger businessmen. You can check coinmarketcap if you don’t believe me. It has 1/2 of Bitcoin 24h volume. That is a WOW FACTOR.

During homestead ETH was added to Bitfinex and a couple of other exchanges, Ethereum is now the most widely traded cryptocurrency after bitcoin and has over half it’s trading volume.

You will be shocked that there is STILL no major Chinese exchange that has added ethereum.

Ethereum is virtually unknown outside of the english speaking world.

All Ethereum related google searches continue to rise at a huge rate.

The general trend of the chart is still UP.

Panic selling has already occurred and the bear trap was sprung. ETH has bottomed out at 0.020 and has spent the last 12 hours gradually rising to over 0.025

The Ethereum PR machine is now VERY well funded.

Consensys and ETHdev have no lack of funding.

More and more announcements will be coming next week

Slock.it ICO will begin end of march and will convert thousands of bitcoins in to ETH

I wanted to take a moment to say thanks again over the amazing guide you’ve provided above. This has been incredible. These secrets are just so amazing. I believe even a toddler will understand all that you have written here.